Grain Traders Watch that Corn: Bean Ratio

Corn: July corn settled up 1 ¼ cents at $4.78. CZ settled up 1 ¾ cents at $4.76 ¼. For the week, July dropped 5 ½ cents and CZ dropped 5 ¾ cents. We had a pretty quiet pre-holiday, low volume trade. Bears are still cheering the 48 ¼ cent “correction” we had over the past 9 trading sessions in new crop CZ. With a relatively friendly weather forecast for the 10 day outlook, the bulls will need to come up with either a demand story or a new weather worry to get the rally back on track. The longer-term trend following funds have to be closely watching the 50-day average at $4.94 ½, the 100-day average at $4.77 ¼, and the 200-day average at $4.79. Going into a long holiday weekend, the planting progress report on Tuesday should be closely examined, as will the COT report from this week which will give us a fresh look at the fund’s position size. Hedgers: No change in recommendations.

Wheat: July Chicago Wheat settled down 6 ¾ cents a $6.52 ½. KCN settled down 6 ¾ cents at $7.45. For the week, Chicago wheat dropped 22 ¾ cents or 3% on the week. WN has now dropped 92 ¾ cents in the last 3 weeks, or a total of 12 ½ % from its 11-month high posted on May 6th, just 13 trading days ago. The KC story is more interesting, dropping $1.14 ¾ over the same time period, losing 13 ½ % in 13 trading days. As for Chicago WN, its found support, at least for today at its 50% retracement of the 5-month, $1.86 rally. Fundamentally, rain in Texas helped pressure wheat prices. Worldwide, the US lost out once again to wheat coming out of the black sea, with that wheat between $15 and $25/ton cheaper than our wheat. Indonesia just purchased 125K tons of Russian wheat. The bounce in the US$ to a one month high didn’t help make our wheat any more attractive either. Hedgers: No change in recommendations. We were able to roll down both KC and Chicago puts today. Take risk off the table where it fits our parameters.

Soybeans: July beans settled down 3 ¼ cents at $15.15 ½. November new crop settled down 4 ¼ cents at $12.65 ¾. For the week, July gained 50 ½ cents or 3 ½ %. SN has now gained, based on settlement prices, $2.69 cents or 21% from it January 6th month low settlement. New crop SX has gained $1.65 or 18% since its 3 ½ year low settlement in January. The funds continue to be the bullish driver. Tuesday we will have a fresh look at the COT report to check on their bet size, which as of this week was an estimated 150K contracts. The 10-day weather forecast for the most part looked to give planters a continued window to roll. Tuesday we’ll get planting progress as well. Basis in the west is finally weakening after last week’s incredible strength last week. The crusher’s margins are adjusting to August instead of July and that could suggest that after a squeeze, crushers don’t need or want to keep chasing the spot market. That could shift back next week, but a drop in basis might be the first sign that the old-crop tightness story might be one tired horse. Hedgers: These values in new crop we consider to be a gift which must be rewarded with cash sales. Call options after a sale keep the upside open on recently sold bushels. Good marketing is balanced marketing. Roll up puts on unpriced grain as well as call options on previously sold grain.

We head into the Memorial Day weekend with soybeans near its 11-month high while corn and wheat near 2 ½ months lows. Tongues continue to wag about the corn/bean ratio. “Normal” was generally agreed to be around 2.52:1; this week we saw a high at 2.7:1. This is a widely quoted ratio. In the end, the American farmer will decide whether or not to plant more beans. It’s a math problem.